8. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to take account of all dilutive potential ordinary shares and adjusting the profit attributable, if applicable, to account for any tax consequences that might arise from conversion of those shares.
| All figures in £ millions | Notes | 2007 | 2006 |
|---|---|---|---|
| Profit for the year from continuing operations | 337 | 444 | |
| Minority interest | (26) | (23) | |
| Earnings from continuing operations | 311 | 421 | |
| (Loss)/profit for the year from discontinued operations | 3 | (27) | 25 |
| Earnings | 284 | 446 | |
| Weighted average number of shares (millions) | 796.8 | 798.4 | |
| Effect of dilutive share options (millions) | 1.3 | 1.5 | |
| Weighted average number of shares (millions) for diluted earnings | 798.1 | 799.9 | |
| Earnings per share from continuing and discontinued operations | |||
| Basic | 35.6p | 55.9p | |
| Diluted | 35.6p | 55.8p | |
| Earnings per share from continuing operations | |||
| Basic | 39.0p | 52.7p | |
| Diluted | 39.0p | 52.6p | |
| Earnings per share from discontinued operations | |||
| Basic | (3.4p) | 3.2p | |
Adjusted
In order to show results from operating activities on a consistent basis, an adjusted earnings per share is presented. The Company’s definition of adjusted earnings per share may not be comparable to other similarly titled measures reported by other companies.
The following items are excluded in the calculation of adjusted earnings:
Amortisation of acquired intangibles is the amortisation of intangible assets acquired through business combinations. The amortisation charge is not considered to be fully reflective of the underlying performance of the Group.
Other net gains and losses represent profits and losses on the sale of subsidiaries, joint ventures, associates and other financial assets that are included within continuing or discontinued operations but which distort the performance of the Group.
Other net finance income/costs are foreign exchange and other gains and losses that represent short-term fluctuations in market value and foreign exchange movements on transactions and balances that are no longer in a hedge relationship. These gains and losses are subject to significant volatility and may not be realised in due course as it is normally the intention to hold these instruments to maturity. Other net finance costs of Group companies are included in finance costs or finance income as appropriate. Other net finance costs of joint ventures and associates are included within the share of results of joint ventures and associates within operating profit.
Tax on the above items is excluded from adjusted earnings. From 2007 the Group has also added the benefit of tax amortisation of goodwill and intangibles as this benefit more accurately aligns the adjusted tax charge with the expected medium-term rate of cash tax payments. The 2006 comparative has been restated accordingly. In 2006, the Company excluded tax benefits from the recognition of its tax losses which due to their size and non-recurring nature were not considered to be fully reflective of the underlying tax rate of the Group.
Minority interest for the above items is excluded from adjusted earnings.
The following tables reconcile statutory earnings to adjusted earnings.
| 2007 | ||||||||
|---|---|---|---|---|---|---|---|---|
| All figures in £ millions | Statutory income statement | Re-analyse discontinued operations | Other net gains and losses | Amortisation of acquired intangibles | Other net finance costs/income | Tax amortisation benefit | Recognition of tax losses | Adjusted income statement |
| Operating profit | 574 | 15 | – | 45 | – | – | – | 634 |
| Net finance costs | (106) | – | – | – | 21 | – | – | (85) |
| Profit before tax | 468 | 15 | – | 45 | 21 | – | – | 549 |
| Income tax | (131) | (5) | (9) | (19) | (6) | 25 | – | (145) |
| Profit for the year from continuing operations |
337 | 10 | (9) | 26 | 15 | 25 | – | 404 |
| Profit for the year from discontinued operations | (27) | (10) | 37 | – | – | – | – | – |
| Profit for the year | 310 | – | 28 | 26 | 15 | 25 | – | 404 |
| Minorities | (26) | – | – | (4) | – | (2) | – | (32) |
| Earnings | 284 | – | 28 | 22 | 15 | 23 | – | 372 |
| Weighted average number of shares (millions) |
796.8 | |||||||
| Adjusted earnings per share | 46.7p | |||||||
| 2006 | ||||||||
|---|---|---|---|---|---|---|---|---|
| All figures in £ millions | Statutory income statement | Re-analyse discontinued operations | Other net gains and losses | Amortisation of acquired intangibles | Other net finance costs/income | Tax amortisation benefit | Recognition of tax losses | Adjusted income statement |
| Operating profit | 522 | 40 | (4) | 35 | (1) | – | – | 592 |
| Net finance costs | (74) | – | – | – | (16) | – | – | (90) |
| Profit before tax | 448 | 40 | (4) | 35 | (17) | – | – | 502 |
| Income tax | (4) | (15) | (4) | (10) | 5 | 25 | (127) | (130) |
| Profit for the year from continuing operations |
444 | 25 | (8) | 25 | (12) | 25 | (127) | 372 |
| Profit for the year from discontinued operations |
25 | (25) | – | – | – | – | – | – |
| Profit for the year | 469 | – | (8) | 25 | (12) | 25 | (127) | 372 |
| Minorities | (23) | – | – | (3) | – | (2) | – | (28) |
| Earnings | 446 | – | (8) | 22 | (12) | 23 | (127) | 344 |
| Weighted average number of shares (millions) |
798.4 | |||||||
| Adjusted earnings per share | 43.1p | |||||||